How capital misallocation is hurting China

Author: Brian Yap | Published: 16 Jun 2017

One of China’s problems is capital misallocation and deleveraging hasn’t helped improve the problem, warned panelists discussing the macroeconomic outlook on the world’s second-biggest economy at the seventh China Capital Markets Conference run by Asifma this week.

The event took place against the backdrop of a recent downgrade of China’s sovereign rating from Aa3 to A1 by Moody’s, which has cited the country’s rising debt problem as the main reason for the cut.

In April, the China Banking Regulatory Commission (CBRC) issued new rules setting out stricter risk controls and management for both domestic and foreign-invested banks. The banking regulator also red-flagged issues in many of the country’s banks’ operational behaviour including excessive leveraging, compliance issues and multilayered financial products.

But panellists argued that the PRC regulators have been too focused on the deleveraging of the banking sector, stressing that the real problem that needs...